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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Mark Bong who wrote (1825)	10/13/2000 3:48:19 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

YEMGO warning. <g> There is some new material at the SEC site discussing SAB 101, which relates to when you can recognize revenue. (Implementation of SAB 101 has been delayed to the 4th quarter, although companies can do it earlier if they like.) Here's the part most significant for biotechs: Question 13 Q: Research and development arrangements may have terms that include up-front payments upon contract signing, scheduled payments during the term of the arrangement, and additional payments if and when certain milestones in the product's development are reached. The arrangements often include provisions for ongoing product manufacturing and distribution rights. How should a registrant account for the up-front payment and the other payments? A: The answer depends on the facts and circumstances. Question 5 of SAB 101 specifically addresses only the circumstance when a nonrefundable fee is received at the outset of an arrangement or at another specified date without a corresponding performance or delivery by the registrant that is the culmination of a separate earnings process. In that situation, the on-going research and development services are essential for the customer to receive any benefit from the technology or access to other assets. In addition, a basis does not exist to objectively determine the fair value of technology access separate from the on-going research activities. Many research and development arrangements in the pharmaceutical and biotechnology industries are more complicated and contain multiple elements. As discussed in Question 4 of this document, the staff has requested that the EITF address the accounting for multiple-element contracts. While an outright sale of technology by the registrant may qualify for separate revenue recognition if sufficient verifiable and objective evidence of fair value exists, research and development arrangements commonly involve granting access to facilities, technology, and other properties along with an agreement to perform research and development activities.21 In the latter circumstances, immediate recognition of the fee generally is inappropriate because the registrant has continuing involvement with the technology through its provision of research and development services that precludes the ability to objectively measure the fair value of the any of the elements individually. Similarly, a nonrefundable fee received without any corresponding performance or delivery should be treated as a nonrefundable advance from the customer and recognized as performance occurs. The accounting for other payments specifically related to the achievement of milestones or for any manufacturing or distribution arrangements should be evaluated based on the specific facts of the arrangements between the parties. Bottom line here is that many deals will now require revenue recognition over the course of the deal rather than upfront. This might actually be good for biotechs, because it perhaps becomes more like recurring revenue, which is likely to be weighted more than one-time revenue. (Of course any effect like this is more a function of the naivete of analysts and reporters than anything real). Full release of the Q&A available at: sec.gov Peter P.S. YEMGO stands for "your eyes might glaze over", a newly-coined variant of MEGO. <g>